FLAHERTY & CRUMRINE/CLAYMORE PREFERRED SECURITIES
INCOME FUND
Dear Shareholder:
The Flaherty & Crumrine/Claymore Preferred Securities Income Fund ("FFC")
delivered very respectable results during the most recently concluded fiscal
quarter. For the three month period ending February 28, 2005, the Fund produced
a total return on net asset value ("NAV") of 4.4%(1). All segments of the
investment portfolio performed well during the period. The Fund's hedges were a
modest drag on investment results, as long-term interest rates declined during
the period.
In recent letters, we have indicated that the Fund is susceptible to the
same factors that have forced many other income-oriented funds to reduce their
dividend distributions. In April, the Fund's monthly dividend was set at $0.1550
per share, a 10.1% reduction from the prior month.
As is the case with other leveraged funds, rising short-term interest
rates have increased the amount the Fund must pay on its Auction Market
Preferred Stock ("AMPS"). Typically, rising short-term interest rates are
accompanied by rising long-term rates, which should increase the value of the
Fund's hedges. The gains on the hedges can then be invested in additional
securities, which in turn increase the Fund's income, and, on balance, help keep
the Fund's dividend relatively stable.
U.S. TREASURY YIELD CURVES
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Maturity 4/30/04 2/28/05
0.25 0.97 2.74
0.50 1.14 2.97
2.00 2.31 3.58
3.00 2.75 3.75
5.00 3.61 3.99
10.00 4.50 4.36
30.00 5.28 4.71
As the above chart shows, current market conditions are anything but
typical--since the Federal Reserve signaled its intent to raise short-term
interest rates last April, short-term interest rates have increased by
approximately 175 basis points, while long-term interest rates have FALLEN by
over 50 basis points! As a result, the Fund's AMPS expense is significantly
higher, but the hedges have not enabled us to produce more income. While we do
not expect these conditions to persist for long periods, at this time it is
necessary to adjust the monthly distribution to a more sustainable amount.
Over the longer term, a "flatter" yield curve (as measured by the
difference in short- and long-term interest rates) is not a bad thing for the
Fund. Obviously, the cost of the Fund's leverage will go up, but at
----------
(1) Based on monthly data provided by Lipper Inc. Distributions are assumed to
be reinvested at NAV in accordance with Lipper's practice.
the same time, the cost of the Fund's hedging strategy should go down. This
effect can be significant since the leverage comprises roughly 34% of the Fund's
assets, while the ENTIRE portfolio is hedged. The impact of the higher leverage
cost occurs almost immediately, while the benefits of lower hedging costs take a
bit longer to impact the Fund's income. The mathematics of all this can be a bit
daunting, but over the long run, these two effects have tended to offset each
other.
As a rule, we don't comment on the market price of the Fund's common
shares; however, recent market activity certainly does warrant some
observations. Over the long run, the market price SHOULD track the net asset
value. From time to time we expect to see some deviation due to factors or
circumstances unique to the Fund. For example, most investors cannot replicate
FFC's investment portfolio, hedging strategy, or leverage, and therefore may be
willing to pay a premium to the NAV.
The chart below plots the recent market price and net asset value of FFC.
For much of this period, the market price traded at a premium to the NAV. We
attributed this in part to the Fund's strategy plus an attractive dividend rate.
During late February of this year, shares were trading around $25 1/2; as of
this writing, they are trading around $22. During the same period, the net asset
value declined less than $0.75!
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Flaherty & Crumrine/Claymore Preferred Securities Income Fund
Market Price vs. Net Asset Value
2/6/04 26.98 25.5
2/13/04 26.99 25.55
2/20/04 26.91 25.36
2/27/04 27.07 25.61
3/5/04 27.13 25.84
3/12/04 27.27 25.87
3/19/04 27.59 25.94
3/26/04 27.76 25.61
4/2/04 27.31 25.39
4/9/04 26.63 25.25
4/16/04 25.89 24.93
4/23/04 24.45 24.54
4/30/04 24.45 24.49
5/7/04 23.52 23.72
5/14/04 24.25 23.68
5/21/04 23.89 23.8
5/28/04 24.49 24
6/4/04 24.4 24
6/11/04 24.39 23.89
6/18/04 24.22 23.85
6/25/04 23.74 23.67
7/2/04 24.06 23.72
7/9/04 24.28 23.83
7/16/04 24.7 24.11
7/23/04 24.3 23.85
7/30/04 24.67 23.86
8/6/04 24.84 24.04
8/13/04 25.01 24.14
8/20/04 24.9 24.02
8/27/04 25.21 24.11
9/3/04 25.2 24.08
9/10/04 25.37 24.32
9/17/04 25.4 24.55
9/24/04 25.26 24.64
10/1/04 25.35 24.34
10/8/04 25.68 24.47
10/15/04 25.82 24.55
10/22/04 25.49 24.34
10/29/04 25.86 24.38
11/5/04 25.4 24.33
11/12/04 25.73 24.36
11/19/04 25.86 24.3
11/26/04 25.9 24.36
12/3/04 25.22 24.3
12/10/04 25.34 24.55
12/17/04 25.34 24.55
12/24/04 25.55 24.21
12/31/04 26 24.32
1/7/05 25.74 24.21
1/14/05 25.44 24.4
1/21/05 25.41 24.38
1/28/05 25.35 24.47
2/4/05 26.1 24.8
2/11/05 25.62 24.77
2/18/05 25.26 24.42
2/25/05 25.38 24.49
3/4/05 25.38 24.53
3/11/05 24.45 24.4
3/18/05 23.2 24.2
3/25/05 22.53 23.75
4/1/05 22.08 23.85
Unlike open-end mutual funds, investors in closed-end funds should have a
longer investment horizon in order to weather swings in the relationship between
market price and NAV. In that same vein, investors with a long-term investment
horizon should stay focused on the NAV performance and dividend history of the
Fund. We plan to stay the course and hopefully will continue to meet and exceed
the objectives of the Fund.
Please take advantage of the Fund's website, www.fcclaymore.com. It
contains a wide range of useful and up-to-date information about the Fund. We
have also addressed in greater detail many of the topics discussed in this
letter.
Sincerely,
/S/DONALD F. CRUMRINE /S/ROBERT M. ETTINGER
Donald F. Crumrine Robert M. Ettinger
Chairman of the Board President
April 5, 2005
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OVERVIEW
FEBRUARY 28, 2005 (UNAUDITED)
-----------------------------
FUND STATISTICS ON 2/28/05
--------------------------------------------------------------------------------
Net Asset Value $ 24.46
Market Price $ 25.54
Premium 4.42%
Yield on Market Price 8.10%
Common Shares
Outstanding 42,541,051
INDUSTRY CATEGORIES % OF PORTFOLIO
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Banks 34%
Utilities 27%
Financial Services 16%
Insurance 15%
REITs 4%
Oil and Gas 2%
Other 2%
MOODY'S RATINGS % OF PORTFOLIO
--------------------------------------------------------------------------------
Aaa 0.9%
Aa 7.5%
A 34.0%
Baa 44.9%
Ba 5.8%
Not Rated 3.2%
--------------------------------------------------------------------------------
Below Investment Grade* 5.1%
* BELOW INVESTMENT GRADE BY BOTH MOODY'S AND S&P.
TOP 10 HOLDINGS BY ISSUER % OF PORTFOLIO
--------------------------------------------------------------------------------
Lehman Brothers 4.5%
J.P. Morgan Chase 4.2%
Wachovia Corp. 4.1%
Duke Energy 3.3%
Zurich RegCaPS 3.2%
Bank of America 3.2%
Ace Ltd. 2.9%
North Fork Bancorporation 2.9%
Countrywide Financial 2.7%
Fannie Mae 2.7%
% OF PORTFOLIO**
------------------------------------------------------------------------------------------------------------
Holdings Generating Qualified Dividend Income (QDI) for Individuals 29%
Holdings Generating Income Eligible for the Corporate Dividend Received Deduction (DRD) 22%
------------------------------------------------------------------------------------------------------------
** THIS DOES NOT REFLECT YEAR-END RESULTS OR ACTUAL TAX CATEGORIZATION OF
FUND DISTRIBUTIONS. THESE PERCENTAGES CAN, AND DO, CHANGE, PERHAPS
SIGNIFICANTLY, DEPENDING ON MARKET CONDITIONS. INVESTORS SHOULD CONSULT
THEIR TAX ADVISOR REGARDING THEIR PERSONAL SITUATION.
3
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 2005 (UNAUDITED)
---------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- ---------
PREFERRED SECURITIES -- 78.7%
BANKING -- 33.6%
----------------------------------------------------------------------------------------------------------------------
108,197 Abbey National Group, 7.375% Pfd., Series C ..................................... $ 2,854,778**(1)
15,000 ABN AMRO Capital Fund Trust VII, 6.08% Pfd. ..................................... 378,750**(1)
ABN AMRO North America, Inc.:
2,015 6.46% Pfd., 144A**** .......................................................... 2,082,230*
12,301 6.59% Pfd., 144A**** .......................................................... 12,813,706*
$ 18,000,000 Astoria Capital Trust I, 9.75% 11/01/29 Capital Security, Series B .............. 22,363,470
19,500 BAC Capital Trust III, 7.00% Pfd. ............................................... 515,775
754,000 BAC Capital Trust IV, 5.875% Pfd. ............................................... 18,797,220
600 BAC Capital Trust V, 7.00% Pfd. ................................................. 15,768
$ 1,240,000 BankBoston Capital Trust I, 8.25% 12/15/26 Capital Security ..................... 1,368,799
$ 16,155,000 BankBoston Capital Trust II, 7.75% 12/15/26 Capital Security, Series B .......... 17,611,939
468,100 Bank of New York Capital V, 5.95% Pfd. .......................................... 11,730,586
51,000 Bank One Capital Trust VI, 7.20% Pfd. ........................................... 1,347,165
$ 500,000 BT Capital Trust B, 7.90% 01/15/27 Capital Security ............................. 544,625(1)
$ 1,000,000 BT Preferred Capital Trust II, 7.875% 02/25/27 Capital Security ................. 1,092,695
$ 6,500,000 Chase Capital I, 7.67% 12/01/26 Capital Security ................................ 7,058,642
426,250 Chase Capital XI, 5.875% Pfd. 06/15/33 .......................................... 10,515,587
18,800 Citigroup, Inc., 6.231% Pfd., Series H .......................................... 990,008*
105,000 Cobank, ACB, 7.00% Pfd., 144A**** ............................................... 5,835,375*
27,900 Comerica (Imperial) Capital Trust I, 7.60% Pfd. ................................. 735,165
$ 800,000 CoreStates Capital Trust I, 8.00% 12/15/26 Capital Security, 144A**** ........... 875,348
$ 11,000,000 Cullen/Frost Capital Trust I, 8.42% 02/01/27 Capital Security, Series A ......... 12,177,660
$ 2,500,000 Dime Capital Trust I, 9.33% 05/06/27 Capital Security, Series A ................. 2,856,512
$ 5,600,000 First Chicago NBD Capital A, 7.95% 12/01/26 Capital Security, 144A**** .......... 6,129,228
$ 875,000 First Chicago NBD Capital B, 7.75% 12/01/26 Capital Security, 144A**** .......... 953,851
$ 3,000,000 First Midwest Capital Trust I, 6.95% 12/01/33 Capital Security .................. 3,330,315
$ 3,500,000 First Tennessee Capital Trust II, 6.30% 04/15/34 Capital Security, Series B ..... 3,573,010
$ 3,000,000 Fleet Capital Trust II, 7.92% 12/11/26 Capital Security ......................... 3,273,750
62,600 Fleet Capital Trust VII, 7.20% Pfd. ............................................. 1,650,449
86,500 Fleet Capital Trust VIII, 7.20% Pfd. ............................................ 2,307,387
3 FT Real Estate Securities Company, 9.50% Pfd., 144A**** ......................... 4,326,572
$ 37,550,000 GreenPoint Capital Trust I, 9.10% 06/01/27 Capital Security ..................... 42,444,079
$ 23,725,000 HBOS Capital Funding LP, 6.85% Pfd. ............................................. 25,040,433(1)
6,300 Household Capital Trust VI, 8.25% Pfd. .......................................... 165,060
$ 14,357,000 J.P. Morgan Capital Trust I, 7.54% 01/15/27 Capital Security .................... 15,573,397
$ 11,908,000 J.P. Morgan Capital Trust II, 7.95% 02/01/27 Capital Security ................... 13,037,891
282,800 J.P. Morgan Chase Capital XIV, 6.20% Pfd., 10/15/34 ............................. 7,198,674
4
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- ---------
PREFERRED SECURITIES -- (CONTINUED)
BANKING -- (CONTINUED)
----------------------------------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co.:
15,000 6.625% Pfd., Series H ......................................................... $ 773,550*
74,558 Adj. Rate Pfd. ................................................................ 3,877,016*
23,800 Keycorp Capital V, 5.875% Pfd., Series A ........................................ 590,002
$ 12,595,000 Keycorp Institutional Capital A, 7.826% 12/01/26 Capital Security, Series A ..... 13,665,008
$ 4,000,000 Lloyds TSB Bank PLC, Tier I, 6.90% 10/22/49 ..................................... 4,199,200(1)
$ 25,280,000 Marshall & Ilsley Capital Trust A, 7.65% 12/01/26 Capital Security ............. 27,426,146
20 Marshall & Ilsley Investment II, 8.875% Pfd., 144A**** .......................... 2,164,910
25,000 Merrill Lynch Preferred Capital, Adj. Rate Pfd., Series G ....................... 635,938*
$ 4,000,000 NB Capital Trust IV, 8.25% Capital Security ..................................... 4,449,060
$ 3,000,000 North Fork Capital Trust I, 8.70% 12/15/26 Capital Security ..................... 3,337,890
$ 13,750,000 RBS Capital Trust B, 6.80% Pfd. ................................................. 14,430,831**(1)
$ 15,600,000 Republic New York Capital I, 7.75% 11/15/26 Capital Security .................... 16,894,020(1)
$ 17,127,000 Republic New York Capital II, 7.53% 12/04/26 Capital Security ................... 18,513,859(1)
Roslyn Real Estate:
40 8.95% Pfd., Pvt., Series C, 144A**** .......................................... 4,319,501
30 Adj. Rate Pfd., Series D, 144A**** ............................................ 3,030,000
Royal Bank of Scotland Group PLC:
597,500 5.75% Pfd., Series L .......................................................... 14,770,200**(1)
209,500 6.40% Pfd., Series M .......................................................... 5,525,563**(1)
$ 14,167,000 Union Planters Capital Trust, 8.20% 12/15/26 Capital Security ................... 15,561,741
60 Union Planters Preferred Funding, 7.75% Pfd., Series 144A**** ................... 7,015,581
23,500 VNB Capital Trust I, 7.75% Pfd. ................................................. 620,165
$ 300,000 Wachovia Capital Trust V, 7.965% 06/01/27 Capital Security, 144A**** ............ 331,281
2,217,200 Wachovia Preferred Funding, 7.25% Pfd., Series A ................................ 64,254,456
$ 20,750,000 Washington Mutual, Inc., 8.36% 12/01/26 Capital Security, 144A**** .............. 22,741,066
$ 8,000,000 Webster Capital Trust II, 10.00% 04/01/27 Capital Security ...................... 9,142,240
365,000 Wells Fargo Capital Trust VII, 5.85% Pfd. ....................................... 9,146,900
45,000 Wells Fargo Capital Trust IX, 5.625% Pfd. ....................................... 1,108,800
-----------------------------------------------------------------------------------------------------------------
532,090,823
--------------
FINANCIAL SERVICES -- 13.3%
----------------------------------------------------------------------------------------------------------------------
58,500 The Bear Stearns Companies, Inc., 5.49% Pfd., Series G .......................... 2,939,917*
30,000 Corporate-Backed Trust Certificates, 7.75% Pfd., Series CIT ..................... 816,150
$ 15,459,000 Countrywide Capital I, 8.00% 12/15/26 Capital Security .......................... 16,340,395
1,030,200 Countrywide Capital IV, 6.75% Pfd. .............................................. 26,836,710
5
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- ---------
PREFERRED SECURITIES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
----------------------------------------------------------------------------------------------------------------------
Fannie Mae:
480,420 5.10% Pfd., Series E .......................................................... $ 21,088,036*
96,300 5.125% Pfd. ................................................................... 4,283,905*
300,000 Adj. Rate Pfd. ................................................................ 16,890,000*
Freddie Mac:
20,000 5.00% Pfd., Series F .......................................................... 883,500*
19,900 5.30% Pfd. .................................................................... 931,817*
42,500 5.79% Pfd. .................................................................... 2,119,263*
483,052 General Electric Capital Corporation, 5.875% Pfd. ............................... 12,267,106
Lehman Brothers Holdings, Inc.:
277,000 5.67% Pfd., Series D .......................................................... 14,171,320*
85,000 5.94% Pfd., Series C .......................................................... 4,361,350*
1,349,750 6.50% Pfd., Series F .......................................................... 36,112,561*
35,000 Lehman Capital Trust III, 6.375% Pfd. Series K .................................. 901,950
5,000 Lehman Capital Trust V, 6.00% Pfd., Series M .................................... 124,950
31,400 Lehman Capital Trust VI, 6.24% Pfd., Series N .................................. 794,420
138,975 Merrill Lynch Capital Trust V, 7.28% Pfd. ....................................... 3,805,136
10,000 Merrill Lynch Preferred Capital Trust IV, 7.12% Pfd. ............................ 270,800
64,300 Morgan Stanley Capital Trust II, 7.25% Pfd. ..................................... 1,678,873
1,101,398 Morgan Stanley Capital Trust III, 6.25% Pfd. .................................... 27,986,523
202,000 Morgan Stanley Capital Trust IV, 6.25% Pfd. ..................................... 5,173,220
9,000 Morgan Stanley Capital Trust V, 5.75% Pfd. ...................................... 221,760
160,000 SLM Corporation, 6.97% Pfd., Series A ........................................... 9,080,000*
-----------------------------------------------------------------------------------------------------------------
210,079,662
--------------
INSURANCE -- 13.4%
----------------------------------------------------------------------------------------------------------------------
1,719,980 ACE Ltd., 7.80% Pfd., Series C .................................................. 46,104,064**(1)
$ 16,551,000 AON Capital Trust A, 8.205% 01/01/27 Capital Security ........................... 18,957,350
48,100 Corporate-Backed Trust Certificates, 8.00% Pfd., Series AON ..................... 1,241,942
106,000 Corts-AON Capital, 8.205% Pfd. .................................................. 2,896,980
37,000 Corts-UnumProvident Corporation, 8.50% Pfd. ..................................... 1,001,960
142,300 Everest Re Capital Trust II, 6.20% Pfd., Series B ............................... 3,493,465(1)
ING Groep NV:
36,000 7.05% Pfd. .................................................................... 951,120**(1)
489,000 7.20% Pfd. .................................................................... 13,012,290**(1)
$ 10,000,000 Mangrove Bay Passthru Trust, 6.102% 07/15/33 Capital Security, 144A**** ......... 10,142,400(1)
$ 2,200,000 MMI Capital Trust I, 7.625% 12/15/27 Capital Security, Series B ................. 2,483,712
270,989 PartnerRe Ltd., 6.75% Pfd., Series C ............................................ 6,948,158**(1)
6
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- ---------
PREFERRED SECURITIES -- (CONTINUED)
INSURANCE -- (CONTINUED)
----------------------------------------------------------------------------------------------------------------------
$ 8,000,000 Provident Financing Trust I, 7.405% 03/15/38 Capital Security ................... $ 7,716,200
Renaissancere Holding:
20,000 6.08% Pfd., Series C .......................................................... 487,800**(1)
332,235 7.30% Pfd., Series B .......................................................... 8,817,517**(1)
94,900 Saturns-AON 2003-3, 8.00% Pfd., Series AON ...................................... 2,471,196
56,000 Saturns-SAFC 2001-7, 8.25% Pfd., Series SAFC .................................... 1,515,640
22,390 St. Paul Capital Trust I, 7.60% Pfd. 588,633
$ 8,075,000 USF&G Capital, 8.312% 07/01/46 Capital Security, 144A**** ....................... 9,987,039
$ 17,000,000 USF&G Capital I, 8.50% 12/15/45 Capital Security, 144A**** ...................... 21,462,925
15,000 XL Capital Ltd., 7.625% Pfd., Series B .......................................... 403,725**(1)
Zurich RegCaPS Funding Trust:
13,100 6.01% Pfd., 144A**** .......................................................... 13,282,155*
35,900 6.58% Pfd., 144A**** .......................................................... 37,923,504*
-----------------------------------------------------------------------------------------------------------------
211,889,775
--------------
UTILITIES -- 12.9%
----------------------------------------------------------------------------------------------------------------------
$ 3,750,000 AGL Capital Trust, 8.17% 06/01/37 Capital Security ............................. 4,162,256
Alabama Power Company:
55,000 5.20% Pfd. .................................................................... 1,378,850*
275,000 5.30% Pfd. .................................................................... 7,026,250*
10,000 Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ....................... 1,044,050*
50,000 Baltimore Gas & Electricity, 7.125% Pfd., Series 1993 ........................... 5,236,500*
35,000 Central Maine Power, 5.25% Pfd., Pvt. ........................................... 3,393,600*
$ 8,700,000 COMED Financing II, 8.50% 01/15/27 Capital Security, Series B ................... 9,647,256
$ 10,395,000 COMED Financing III, 6.35% 03/15/33 Capital Security ............................ 11,062,463
23,883 Delmarva Power & Light, 5.00% Pfd. 2,342,683*
50,000 Dominion CNG Cap Trust I, 7.80% Pfd. ............................................ 1,317,000
$ 8,082,000 Dominion Resources Capital Trust I, 7.83% 12/01/27 Capital Security ............ 8,907,738
Duke Energy Corporation:
85,385 4.50% Pfd., Series C, Pvt. .................................................... 7,508,757*
59,662 7.04% Pfd., Series Y .......................................................... 6,158,013*
51,331 7.85% Pfd., Series S .......................................................... 5,320,715*
96,450 Duquesne Light Company, 6.50% Pfd. .............................................. 5,266,652*
67,700 Energy East Capital Trust I, 8.25% Pfd. ......................................... 1,786,941
Entergy Arkansas, Inc.:
10,240 4.56% Pfd., Series 1965 ....................................................... 857,805*
5,692 7.40% Pfd. .................................................................... 592,224*
11,675 Entergy Louisiana, Inc., 8.00% Pfd., Series 92 .................................. 294,502*
7
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- ---------
PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
----------------------------------------------------------------------------------------------------------------------
Florida Power Company:
49,750 4.40% Pfd. .................................................................... $ 4,305,614*
37,088 4.58% Pfd. .................................................................... 3,357,948*
21,585 4.60% Pfd. .................................................................... 1,953,011*
60,000 FPC Capital I, 7.10% Pfd., Series A ............................................. 1,512,000
12,442 Great Plains Energy, Inc., 4.20% Pfd. ........................................... 944,161*
5,000 Gulf Power Capital Trust III, 7.375% Pfd. ....................................... 132,625
$ 17,262,000 Houston Light & Power, Capital Trust II, 8.257% 02/01/37 Capital Security ....... 18,939,953
119,805 Indianapolis Power & Light Company, 5.65% Pfd. .................................. 11,407,233*
Interstate Power & Light Company:
110,000 7.10% Pfd., Series C .......................................................... 2,991,450*
11,000 8.375% Pfd., Series B ......................................................... 371,360*
15,017 Kentucky Energy Corp., 4.75% Pfd. ............................................... 1,351,455*
32,300 Laclede Capital Trust I, 7.70% Pfd. ............................................. 878,721
5,000 Northern Indiana Public Service Company, Adj. Rate Pfd., Series A ............... 254,000*
Pacific Enterprises:
4,550 $4.40 Pfd. .................................................................... 399,763*
4,510 $4.50 Pfd. .................................................................... 405,269*
23,085 $4.75 Pfd., Series 53 ......................................................... 2,189,612*
3,500 PacifiCorp, $7.48 Sinking Fund Pfd. ............................................. 374,710*
$ 2,337,000 PECO Energy Capital Trust III, 7.38% 04/06/28 Capital Security, Series D ........ 2,776,718
$ 27,000,000 PECO Energy Capital Trust IV, 5.75% 06/15/33 Capital Security ................... 26,517,510
13,061 Portland General Electric, 7.75% Sinking Fund Pfd. .............................. 1,323,406*
215,750 PSEG Funding Trust II, 8.75% Pfd. ............................................... 6,049,630
$ 6,000,000 Puget Capital Trust, 8.231% 06/01/27 Capital Security, Series B ................. 6,563,490
200,000 San Diego Gas & Electric Company, $1.70 Pfd. .................................... 5,212,000*
42,000 Savannah Electric & Gas Company, 6.00% Pfd. ..................................... 1,091,580*
190,000 Southern Union Company, 7.55% Pfd. .............................................. 5,250,650*
34,252 TXU US Holdings Company, $4.00 Pfd., Series TES ................................. 2,554,343*
$ 2,500,000 Union Electric Company, 7.69% 12/15/36 Capital Security, Series A ............... 2,725,287
Virginia Electric & Power Company:
14,985 $4.12 Pfd. .................................................................... 1,259,414*
21,684 $4.80 Pfd. .................................................................... 2,123,189*
78,700 Virginia Power Capital Trust, 7.375% Pfd. 07/30/42 .............................. 2,091,453
15,000 Wisconsin Power & Light Company, 6.20% Pfd. ..................................... 1,539,525*
Xcel Energy, Inc.:
7,110 $4.10 Pfd., Series C .......................................................... 551,594*
10,210 $4.11 Pfd., Series D .......................................................... 793,981*
-----------------------------------------------------------------------------------------------------------------
203,496,910
--------------
8
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Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 (UNAUDITED)
---------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- ---------
PREFERRED SECURITIES -- (CONTINUED)
OIL AND GAS -- 1.8%
----------------------------------------------------------------------------------------------------------------------
13,200 EOG Resources, Inc., 7.195% Pfd., Series B ...................................... $ 14,086,512*
$ 13,315,000 Phillips 66 Capital Trust II, 8.00% 01/15/37 Capital Security ................... 14,611,282
-----------------------------------------------------------------------------------------------------------------
28,697,794
--------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 3.2%
----------------------------------------------------------------------------------------------------------------------
AMB Property Corporation:
54,405 6.50% Pfd., REIT, Series L .................................................... 1,368,014
30,000 6.75% Pfd., REIT, Series M .................................................... 765,150
160,000 BRE Properties, Inc., 6.75% Pfd., REIT, Series C ................................ 4,074,400
228,250 Duke Realty Corporation, 6.60% Pfd., REIT, Series L ............................. 5,747,335
19,100 Equity Office Property Trust, 7.75% Pfd., REIT, Series G ........................ 509,015
51,000 Equity Residential Properties, 8.29% Pfd., REIT, Series K ....................... 3,244,875
PS Business Parks, Inc.:
167,640 6.875% Pfd., REIT, Series I ................................................... 4,171,721
32,464 7.00% Pfd., REIT, Series H .................................................... 815,983
203,400 7.60% Pfd., REIT, Series L .................................................... 5,326,029
60,000 7.95% Pfd., REIT, Series K .................................................... 1,598,100
Public Storage, Inc.:
14,700 7.625% Pfd., REIT, Series U ................................................... 387,786
18,000 8.00% Pfd., REIT, Series R .................................................... 479,520
440,000 Realty Income Corporation, 7.375% Pfd., REIT, Series D .......................... 11,745,800
263,000 Regency Centers Corporation, 7.25% Pfd., REIT ................................... 6,847,205
162,000 Weingarten Realty Investment, 6.95% Pfd., REIT .................................. 4,377,240
-----------------------------------------------------------------------------------------------------------------
51,458,173
--------------
MISCELLANEOUS INDUSTRIES -- 0.5%
----------------------------------------------------------------------------------------------------------------------
100,000 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** ............................. 8,410,500*
-----------------------------------------------------------------------------------------------------------------
8,410,500
--------------
TOTAL PREFERRED SECURITIES
(Cost $1,191,695,456) ......................................................... 1,246,123,637
--------------
CORPORATE DEBT SECURITIES -- 16.1%
BANKING -- 0.2%
----------------------------------------------------------------------------------------------------------------------
$ 2,500,000 Citigroup, Inc., 6.00% 10/31/33 ................................................. 2,645,487
-----------------------------------------------------------------------------------------------------------------
2,645,487
--------------
FINANCIAL SERVICES -- 2.7%
----------------------------------------------------------------------------------------------------------------------
46,200 Corp-Backed Trust Certificates, 5.80% Series Goldman Sachs ...................... 1,152,459
$ 25,000,000 General Motors Acceptance Corporation, 8.00% 11/01/31, Senior Bonds ............. 25,217,500
9
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- ---------
CORPORATE DEBT SECURITIES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
----------------------------------------------------------------------------------------------------------------------
Lehman Brothers:
$ 5,018,000 Guaranteed Note, Variable Rate, 12/16/16, 144A**** ............................ $ 5,030,545
$ 9,282,000 Guaranteed Note, Variable Rate, 10/15/15, 144A**** ............................ 9,699,690
$ 2,200,000 Morgan Stanley Finance, 8.03% 02/28/17, Capital Units ........................... 2,374,867
-----------------------------------------------------------------------------------------------------------------
43,475,061
--------------
INSURANCE -- 0.9%
----------------------------------------------------------------------------------------------------------------------
239,000 Delphi Financial, 8.00% 05/15/33, Senior Notes .................................. 6,380,105
$ 6,400,000 OneAmerica Financial Partners, 7.00% 10/15/33 144A**** .......................... 7,193,664
$ 1,000,000 UnumProvident Corporation, 7.25% 03/15/28, Senior Notes ......................... 1,016,340
-----------------------------------------------------------------------------------------------------------------
14,590,109
--------------
OIL AND GAS -- 0.4%
----------------------------------------------------------------------------------------------------------------------
238,261 Nexen, Inc., 7.35% Subordinated Notes ........................................... 6,416,369(1)
-----------------------------------------------------------------------------------------------------------------
6,416,369
--------------
UTILITIES -- 11.2%
----------------------------------------------------------------------------------------------------------------------
$ 32,000,000 AEP Texas Central Company, 6.65% 02/15/33, Senior Notes, Series E ............... 36,127,360
$ 19,000,000 Constellation Energy Group, 7.60% Pfd., 04/01/32, Senior Notes .................. 23,385,200
$ 1,000,000 DTE Energy Company, 6.375% 04/15/33, Senior Notes ............................... 1,066,210
Duke Capital Corporation:
$ 11,179,000 6.75% 02/15/32, Senior Notes .................................................. 12,437,308
$ 10,000,000 8.00% 10/01/19, Senior Notes .................................................. 12,320,550
$ 5,000,000 Entergy Gulf States, Inc., 6.20% 07/01/33, 1st Mortgage ......................... 5,046,475
16,500 Entergy Mississippi, Inc., 7.25% Pfd., 1st Mortgage ............................. 439,890
Georgia Power Company:
567,015 5.90% 04/15/33, Senior Notes .................................................. 14,410,686
125,000 6.00% 10/15/33, Senior Notes .................................................. 3,227,500
60,000 6.00% 08/15/44, Senior Notes, FGIC Insured .................................... 1,594,200
$ 3,000,000 Indianapolis Power & Light Company, 6.60% 01/01/34, 1st Mortgage, 144A**** ...... 3,361,365
40,000 Northern States Power Company, 8.00% ............................................ 1,094,800
$ 10,000,000 Oncor Electric Delivery Company, 7.25% 01/15/33, Secured ........................ 12,150,900
$ 18,268,000 PSEG Power LLC, 8.625% 04/15/31 ................................................. 24,948,608
$ 6,300,000 TXU Corporation, 6.55% 11/15/34, 144A**** ....................................... 6,445,656
$ 10,250,000 TXU U.S. Holdings Company, 7.00% 03/15/13 ....................................... 11,489,584
$ 6,000,000 Wisconsin Electric Power Company, 6.875% 12/01/95 ............................... 7,117,710
-----------------------------------------------------------------------------------------------------------------
176,664,002
--------------
10
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- ---------
CORPORATE DEBT SECURITIES -- (CONTINUED)
REAL ESTATE INVESTMENT TRUST (REIT) -- 0.2%
----------------------------------------------------------------------------------------------------------------------
$ 2,780,000 EOP Operating LP, 7.875% 07/15/31, REIT ......................................... $ 3,425,502
-----------------------------------------------------------------------------------------------------------------
3,425,502
--------------
MISCELLANEOUS -- 0.5%
----------------------------------------------------------------------------------------------------------------------
$ 390,000 BellSouth Telecommunication, 7.00% 12/01/95 ..................................... 427,744
$ 5,000,000 Ford Motor Company, 7.45% 07/16/31 ............................................. 4,834,725
30,000 Maytag Corporation, 7.875% 08/01/31 ............................................. 760,800
$ 1,945,000 Verizon Maryland, 7.15% 05/01/23 ................................................ 2,121,081
-----------------------------------------------------------------------------------------------------------------
8,144,350
--------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $233,523,168) ........................................................... 255,360,880
--------------
COMMON STOCKS AND CONVERTIBLE SECURITIES -- 3.1%
INSURANCE -- 0.3%
----------------------------------------------------------------------------------------------------------------------
20,000 Hartford Financial Services, 7.00% Mandatory Convertible, 08/16/06 .............. 1,345,400
45,000 UnumProvident Corporation, 8.25% Mandatory Convertible, 05/16/06 ................ 1,544,175
54,000 XL Capital Ltd., 6.50% Mandatory Convertible, 05/15/07 .......................... 1,318,410(1)
-----------------------------------------------------------------------------------------------------------------
4,207,985
--------------
UTILITIES -- 2.6%
----------------------------------------------------------------------------------------------------------------------
170,700 Ameren Corporation, 9.75% Mandatory Convertible, 05/15/05 ....................... 4,734,364
75,000 American Electric Power, 9.25% Mandatory Convertible, 08/16/05 .................. 3,304,875
300,000 Duke Energy Corporation ......................................................... 8,107,500*
261,450 FPL Group, Inc. ................................................................. 20,778,739*
100,000 Keyspan Corporation, 8.75% Mandatory Convertible, 05/16/05 ...................... 5,121,500
-----------------------------------------------------------------------------------------------------------------
42,046,978
--------------
MISCELLANEOUS -- 0.2%
----------------------------------------------------------------------------------------------------------------------
65,000 Alltel Corporation, 7.75% Pfd. Mandatory Convertible, 05/17/05 .................. 3,306,875
-----------------------------------------------------------------------------------------------------------------
3,306,875
--------------
TOTAL COMMON STOCKS AND CONVERTIBLE SECURITIES
(Cost $41,201,814) ............................................................ 49,561,838
--------------
OPTION CONTRACTS -- 1.1%
10,000 June Put Options on June U.S. Treasury Bond Futures, Expiring 05/20/05 .......... 17,171,875+
-----------------------------------------------------------------------------------------------------------------
TOTAL OPTION CONTRACTS
(Cost $12,521,776) ............................................................ 17,171,875
--------------
11
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2005 (UNAUDITED)
--------------------------------------------------------------------------
SHARES/$ PAR VALUE
-------------- ---------
MONEY MARKET FUND -- 0.1%
899,863 BlackRock Provident Institutional, TempFund ..................................... $ 899,863
-----------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost $899,863) ............................................................... 899,863
--------------
TOTAL INVESTMENTS (Cost $1,479,842,077***) ...................................... 99.1% 1,569,118,093
OTHER ASSETS AND LIABILITIES (NET) .............................................. 0.9% 13,502,065
------- --------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK AND PREFERRED STOCK .................. 100.0%++ $1,582,620,158
------- --------------
AUCTION MARKET PREFERRED STOCK (AMPS) REDEMPTION VALUE ........................................ (542,000,000)
--------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK .................................................... $1,040,620,158
==============
----------
* Securities eligible for the Dividends Received Deduction and distributing
Qualified Dividend Income.
** Securities distributing Qualified Dividend Income only.
*** Aggregate cost of securities held.
**** Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may by resold in transactions exempt from
registration to qualified institutional buyers.
(1) Foreign Issuer.
+ Non-income producing.
++ The percentage shown for each investment category is the total value of
that category as a percentage of net assets available to Common and
Preferred Stock.
ABBREVIATIONS:
REIT -- Real Estate Investment Trust
PFD. -- Preferred Securities
PVT. -- Private Placement Securities
Capital Securities are treated as debt instruments for financial
statement purposes and the amounts shown in the Shares/$ Par column are
dollar amounts of par value.
12
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1)
FOR THE PERIOD FROM DECEMBER 1, 2004 THROUGH FEBRUARY 28, 2005 (UNAUDITED)
--------------------------------------------------------------------------
VALUE
---------
OPERATIONS:
Net investment income ................................................................. $ 21,648,864
Net realized loss on investments sold during the period ............................... (6,537,132)
Change in net unrealized appreciation of investments held during the period ........... 32,107,363
Distributions to Auction Market Preferred Stock (AMPS) Shareholders from net
investment income, including changes in accumulated undeclared distributions ...... (3,087,493)
--------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ........................................ 44,131,602
DISTRIBUTIONS:
Distributions paid from net investment income to Common Stock Shareholders(2) ......... (28,889,838)
--------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS .................................. (28,889,838)
FUND SHARE TRANSACTIONS:
Increase from Common Stock Transactions ............................................... 3,294,290
--------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK RESULTING
FROM FUND SHARE TRANSACTIONS ...................................................... 3,294,290
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK --------------
FOR THE PERIOD .................................................................... $ 18,536,054
==============
--------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of period ................................................................... $1,022,084,104
Net increase during the period ........................................................ 18,536,054
--------------
End of period ......................................................................... $1,040,620,158
==============
----------
(1) These tables summarize the three months ended February 28, 2005 and should
be read in conjunction with the Fund's audited financial statements,
including footnotes, in its Annual Report dated November 30, 2004.
(2) Includes income earned, but not paid out, in prior fiscal year.
13
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
FINANCIAL HIGHLIGHTS(1)
FOR THE PERIOD FROM DECEMBER 1, 2004 THROUGH FEBRUARY 28, 2005 (UNAUDITED)
FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD.
-----------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ................................................... $ 24.10
-----------
INVESTMENT OPERATIONS:
Net investment income .................................................................. 0.51
Net realized and unrealized gain on investments ........................................ 0.60
DISTRIBUTIONS TO AMPS* SHAREHOLDERS:
From net investment income ............................................................. (0.07)
From net realized capital gains ........................................................ --
-----------
Total from investment operations ....................................................... 1.04
-----------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income ............................................................. (0.68)
From net realized capital gains ........................................................ --
-----------
Total distributions to Common Shareholders ............................................. (0.68)
-----------
Net asset value, end of period ......................................................... $ 24.46
===========
Market value, end of period ............................................................ $ 25.54
===========
Common shares outstanding, end of period ............................................... 42,541,051
===========
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
Net investment income + ................................................................ 7.14%**
Operating expenses ..................................................................... 1.18%**
-------------------------------------------
SUPPLEMENTAL DATA:++
Portfolio turnover rate ................................................................ 3%***
Total net assets available to Common and Preferred Stock, end of period (in 000's) ..... $ 1,582,620
Ratio of operating expenses to total average net assets available to
Common and Preferred Stock ......................................................... 0.78%**
(1) These tables summarize the three months ended February 28, 2005 and should
be read in conjunction with the Fund's audited financial statements,
including footnotes, in its Annual Report dated November 30, 2004.
* Auction Market Preferred Stock.
** Annualized.
*** Not annualized.
+ The net investment income ratios reflect income net of operating expenses
and payments to AMPS* Shareholders.
++ Information presented under heading Supplemental Data includes AMPS*.
--------------------------------------------------------------------------------
14
--------------------------------------------------------------------------------
Flaherty & Crumrine/Claymore Preferred Securities Income Fund Incorporated
FINANCIAL HIGHLIGHTS (CONTINUED)
PER SHARE OF COMMON STOCK (UNAUDITED)
-------------------------------------
TOTAL DIVIDEND
DIVIDENDS NET ASSET NYSE REINVESTMENT
PAID VALUE CLOSING PRICE PRICE(1)
--------- --------- ------------- ------------
December 31, 2004 - EXTRA ......... $0.1625 $24.32 $26.00 $24.70
December 31, 2004 ................. 0.1725 24.32 26.00 24.70
January 31, 2005 .................. 0.1725 24.56 25.58 24.56
February 28, 2005 ................. 0.1725 24.46 25.54 24.46
----------
(1) Whenever the net asset value per share of the Fund's common stock is less
than or equal to the market price per share on the payment date, new
shares issued will be valued at the higher of net asset value or 95% of
the then current market price. Otherwise, the reinvestment shares of
common stock will be purchased in the open market.
15
[GRAPHIC OMITTED]
LIGHTHOUSE GRAPHIC
FLAHERTY & CRUMRINE/CLAYMORE
============================
PREFERRED SECURITIES
INCOME FUND
QUARTERLY
REPORT
FEBRUARY 28, 2005
web site: www.fcclaymore.com
DIRECTORS
Martin Brody
Donald F. Crumrine, CFA
Nicholas Dalmaso
David Gale
Morgan Gust
Robert F. Wulf, CFA
OFFICERS
Donald F. Crumrine, CFA
Chairman of the Board
and Chief Executive Officer
Robert M. Ettinger, CFA
President
R. Eric Chadwick, CFA
Chief Financial Officer,
Vice President, Treasurer
and Secretary
Peter C. Stimes, CFA
Chief Compliance
Officer and Vice President
Nicholas Dalmaso
Vice President
Bradford S. Stone
Vice President
Laurie Lodolo
Assistant Compliance Officer,
Assistant Treasurer and
Assistant Secretary
INVESTMENT ADVISER
Flaherty & Crumrine Incorporated
e-mail: flaherty@pfdincome.com
QUESTIONS CONCERNING YOUR SHARES OF FLAHERTY &
CRUMRINE/CLAYMORE PREFERRED SECURITIES INCOME
FUND?
o If your shares are held in a Brokerage Account, contact your Broker.
o If you have physical possession of your shares in certificate form, contact
the Fund's Transfer Agent & Shareholder Servicing Agent --
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
1-800-331-1710
THIS REPORT IS SENT TO SHAREHOLDERS OF FLAHERTY & CRUMRINE/CLAYMORE PREFERRED
SECURITIES INCOME FUND INCORPORATED FOR THEIR INFORMATION. IT IS NOT A
PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE PURCHASE OR SALE
OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS REPORT.